Johannesburg — Growth in private-sector credit slowed to its lowest pace in more than 40 years in August, showing that interest rate cuts have done little so far to revive the shrinking economy.

Private sector credit extension (PSCE) grew 2,3% compared with that of the previous August, moderating from 3,4% in July, and below forecasts for a 2,75% rise, data showed yesterday.

Reserve Bank officials said yesterday it was the lowest annual growth rate since October 1966, when PSCE grew 1,6%. It hit a 27,5% peak in October 2006.

A leading survey showed yesterday that consumer confidence dipped in the third quarter with a "tiny" majority of South Africans expecting an economic upturn.

The two sets of data signal that spending by local households and companies is unlikely to rebound quickly, dampening hopes of a strong recovery from SA's first recession since 1992.

That could also back the case for more rate cuts, provided that inflation continues to subside.

"Although there is a cyclical upturn in the economy it will remain very gradual," said First National Bank chief economist Cees Bruggemans. "Too many households have too much debt, too little income, limited credit access and anxiety about what comes next."

A consumer confidence index compiled by FNB and the Bureau for Economic Research fell by three points to +1 in the third quarter. Confidence improved among high-income households, which were most likely to have benefited from the five percentage point fall in lending rates seen since December.

But the mood in low-income households slipped, reflecting an economy that has shed 475 000 jobs since the start of this year.

Consumer spending, the economy's main engine, has contracted for four quarters in a row, shrinking at its fastest pace in more than two decades in the second quarter of this year.

So has disposable income. Investment, the economy's other engine, ground to a halt. Yesterday's figures suggest that all these trends are still firmly in place. Corporate borrowing fell 2,4% in August, the third annual decline in a row, while household borrowing moderated to 3,6% from 4% in July.

"Although both the local and global economy is slowly emerging from recession, the recovery is probably going to be weaker than most expect," said Nedbank economist Carmen Altenkirch.

"With inflation forecast to move back in the target range early next year, the Bank will remain sensitive to any signs that the recovery is faltering."

Nedbank is sticking to its view that the Bank will cut its repo rate, now 7%, again in the next few months. So is Investec , which believes overall credit will contract later this year. It also sees the economy growing only 1,5% next year, below consensus forecasts for growth of about 2%.

"We believe the economic recovery in 2010 will be slow and uneven," it said in a research note. Further rate cuts would depend on the Bank's outlook for inflation, which rose by 6,4% in the year to August, it said.

Interest-rate changes usually take up to 18 months to be felt fully in an economy, so there is a case for allowing more time for previous cuts to do their work.

But many expect the downtrend to hold. "Growth in credit is expected to weaken further during the remainder of the year," Altenkirch said.

Growth in loans and advances dived to 0,8% in August versus the same month last year, its lowest since the mid 1960 s and down from a 2,1% rise in July. Instalment sales and leasing finance dived a record 4,2%, after a 3,2% fall in July, reflecting weak corporate and consumer demand for vehicles and equipment.